Avantronics is being reviewed by several entities whose interests vary, and the company’s financial ratios are a part of the data being considered. Each of the following parties must recommend an action based on its evaluation of Avantronics’s financial position:
MidCoastal Bank. The bank is processing Avantronics’s application for a new five-year term note. MidCoastal has been the banker for Avantronics for several years but must reevaluate the company’s financial position for each major transaction.
Ozawa Company. Ozawa is a new supplier to Avantronics and must decide on the appropriate credit terms to extend to the company.
Drucker & Denon. A brokerage firm specializing in the stock of electronics firms that are sold over the counter, Drucker & Denon must decide whether it will include Avantronics in a new fund being established for sale to Drucker & Denon’s clients.
Working Capital Management Committee. This is a committee of Avantronics’s management personnel chaired by the chief operating officer. The committee is responsible for periodically reviewing the company’s working-capital position, comparing actual data against budgets, and recommending changes in strategy as needed.
Required
· A. Describe the analytical use of each of the five ratios presented in the chart.
· B. For each of the four entities described, identify the financial ratios, from those ratios presented, that would be most valuable as a basis for its decision regarding Avantronics.
· C. Discuss what the financial ratios presented in the question reveal about Avantronics. Support your answer by citing specific ratio levels and trends, as well as the interrelationships among these ratios.
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